While the video gaming industry remains a compelling and viable one, individual sector investments haven’t lived up to the hype. For instance, gaming giant Activision Blizzard (NASDAQ:ATVI) offers several revenue streams, as well as an indispensable brand. However, Activision Blizzard stock is a different animal.
Between October and December of last year, ATVI stock dropped a staggering 44%. To help make up for those losses, the bulls have pushed shares up 18% since the beginning of January. Of course, that doesn’t really do much in the bigger scheme. In order to fully make up for a 44% loss, you would need to see almost 79% in profit.
Plus, the mostly sideways trading in Activision Blizzard stock throughout this year didn’t endear prospective buyers. Not to pour salt on festering wounds, but competitors like Take-Two Interactive Software (NASDAQ:TTWO) and especially Zynga (NASDAQ:ZNGA) have notably outperformed ATVI.
Therefore, I understand the temptation to avoid or otherwise ignore ATVI stock. However, listening to that pessimistic voice is a big mistake. Here’s why:
E-Sports Will Drive Activision Blizzard Stock Higher
As I’ve argued in prior InvestorPlace articles, e-sports is a massive phenomenon that is only getting bigger. If you don’t believe me, you can simply reference ATVI’s extraordinary momentum with its Overwatch e-sports league.
When I first covered Overwatch, I was bullish on Activision Blizzard stock because of the positive implications. Hindsight being 20/20, that optimism didn’t pan out. But the main point was that this e-sports league was tapping into strong demand for a seemingly oxymoronic entity: professional video gamers.
Personally, I was hesitant at the time of overselling how important Overwatch was to the longer-term narrative for ATVI stock. I don’t have that apprehension anymore. Recently, the company along with its partners capped off a resoundingly successful second season of its Overwatch League.
And don’t think that enthusiasm over e-sports merely revolves around gamers and fans. Instead, Overwatch is attracting high-dollar clients. This year, ATVI structured Overwatch into global teams segmented by cities, just like the NFL, NBA, or MLB. And these high-net worth individuals purchased several team slots at around $20 million each.
According to CNBC, owners of traditional sports franchises purchased most of the slots, including the Kraft family.
Logically, this bodes amazingly well for ATVI stock. As one of the old guards of gaming, Activision recognized the industry’s paradigm shift. Now, it’s no longer enough to produce great games, although that certainly helps. Rather, management must cater to the current need for connectivity.
As professional entertainer and magician David Ranalli noted, digital forms of entertainment such as video games may point “to a deeper biological and social need that people now outsource to electronics.” Further, “electronic media does service many of the key brain functions and social instincts.”
In that regard, Activision Blizzard stock is winning big time.
The Digital Replacement Will Benefit ATVI Stock
Although I’m long-term bullish on Activision Blizzard stock in part for bringing gaming to the mainstream, I’m still a traditionalist. Indeed, I don’t think I can ever get excited about video game leagues as I am about real sports.
However, people like me will increasingly become a minority, and therefore, irrelevant. But more broadly worrisome is that the sporting events I’m interested in may also lose relevancy. In fact, we’re already seeing it.
Tune in to any baseball game. Chances are, if you’re not watching a particularly high-stakes game, you’ll notice row upon row of empty seats. As countless sources have reported, traditional sports are losing people at the turnstile.
This isn’t limited to just baseball. Even our beloved NFL – America’s de facto state-sponsored religion – has suffered declining attendance.
Partially, this is due to demographic shifts. Increasingly, video games have transitioned from a nerdy (almost exclusively male) subculture to a robust and dynamic industry. As Overwatch demonstrated with their sold-out shows, e-sports is very much stealing market share from real sports. This naturally benefits ATVI stock.
But as New York Magazine’s Will Leitch argues, traditional sports league owners don’t care about this digital replacement, per say. That’s because the way people consume sports – electronic or otherwise – has changed to the digital platform. Thus, sports team owners are still making their money.
Still, I think Overwatch’s rabidly successful sophomore season is a shot across the bow. Esports is flexing its muscles. Eventually, this will translate to a credible comeback effort by Activision Blizzard stock.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
